We are studying the mechanisms that maintain constitutive heterochromatic regions in a condensed form. For this purpose we originally used a well characterized 16 kb heterochromatin segment located upstream of the chicken beta globin locus. In other published studies we have measured the hydrodynamic properties of this fragment, which is typical of a large proportion of vertebrate genomes, and which has the potential if unregulated to silence adjacent genes in a manner deleterious to cellular function. We found that maintenance of the condensed structure is coupled to low level transcription in the region, and that elevation of levels of histone acetylation by use of histone deacetylase inhibitors (TSA) markedly increases transcription. We asked whether Dicer/Argonaute dependent mechanisms could be involved in formation of this heterochromatic region. We found that depletion of Dicer by siRNA resulted in opening of the condensed chromatin structure much as what was observed following TSA treatment. Furthermore, Ago2 is bound to this region in a Dicer-dependent manner. We have now investigated the binding of Ago2 to the ribosomal gene repeats in the human erythroid cell line, K562. We find that binding is concentrated over the coding region of the silent ribosomal DNA loci, and to mostly sense-strand small RNAs derived from these loci. Depletion of Ago2 results in changes in histone modification patterns associated with gene activation. These results demonstrate an important role for Ago2 in regulation of silent rDNA chromatin structure, which is a critical focal point for overall cellular homeostasis.